UAE govt plans to remove monopolies of some family businesses

The United Arab Emirates (UAE) government plans to deepen economic reforms to attract more investment. As part of the reforms, the state told some of its biggest business families that it plans to remove their monopolies on the sale of imported goods, the Financial Times reported.

According to existing commercial agency agreements, foreign companies were required to appoint local partners to distribute their goods. The government has now proposed legislation to end the automatic renewal of existing agreements that will give multinationals the flexibility to distribute their own goods or change their local agent on expiry of the respective contracts.

Officials indicated that the new law was expected to be approved by the government but the timing remained uncertain. The UAE government did not comment.

The proposed reform would replace decades of protection for local interests in favour of foreign entities, and would tear up the longstanding social contract between the government and influential merchant families, including storied names such as Al Futtaim, Al Rostamani and Juma Al Majid.

“This is one of the taboos most difficult to touch due to its impact on family-owned local businesses, one of the largest sectors of the UAE economy,” said Habib Al Mulla, the executive chair of law firm Baker McKenzie’s Middle Eastern branch.

Family-owned businesses, from small companies to the conglomerates, make up 90 per cent of the UAE’s private sector, which itself accounts for around three-quarters of employment. Such families dominate a retail sector that underpins Dubai’s thriving tourism sector, which is rebounding again.

The UAE aims to attract more investment via competitive legal and social changes, such as long-term residency programmes and fewer restrictions on cohabitation and alcohol.

The pace of reform has accelerated amid a nascent economic rivalry with Saudi Arabia. As part of its own plans to diversify away from hydrocarbons, the kingdom has imposed tariffs on Gulf imports and is pressuring multinationals to relocate regional headquarters to Riyadh.

In the recent years, some new entrants, including Apple and Tesla, have been allowed to open their own stores in the UAE without local agents. Other multinationals have been requesting that their local partners change agency agreements into joint ventures, giving them more control over marketing and raising their potential returns.

Merchant families, recognising the inevitable end of archaic agency agreements, have been agreeing to such demands, the report quoted the people as saying. When the commercial agency agreements expire, the local agents would likely receive compensation for their investment in retail infrastructure and sales networks.

“This is the right thing to do now, but perhaps not the right way of introducing it,” said one family business owner.